Amazon (NASDAQ:AMZN) reported third-quarter earnings last night (October 30), with the stock price up 13% in extended trading. I’m surprised, but there’s a very clear reason for it.

AWS, the company’s cloud computing division, is seeing accelerated revenue growth. Investors have even more to offer in the area of ​​artificial intelligence (AI).

AWS development

Before publication, I thought AWS revenue growth would be around 17%. I expected the market to react badly to it Microsoft (40%) i Alphabet (36%) post higher numbers.

It’s worth noting that AWS is about the size of its other two competitors combined. However, its growth was noticeably slower than its competitors, and as a result, the company’s shares struggled.

In fact, growth in the cloud industry was 20% – the best result since 2022. That’s a sign of sturdy demand, and Amazon raised its capital spending forecast to $125 billion from $118 billion.

There is a lot to like about AWS and its future growth prospects. But I think one of the most significant events may just be starting to take shape.

Train2

Amazon’s report included information about the huge adoption of Trainium2, which is the company’s custom AI chip. And that’s what I’m focusing on right now.

I expect this to be the main source of growth in the medium term. Trainium2 has better energy efficiency than NvidiaBlackwell GPUs, but at the expense of flexibility.

Blackwell’s versatility is valuable in the brief term, but I think that will change as the application grows. I expect that as AI roles become more regulated, efficiency will become more significant.

Importantly, Trainium2 was created specifically for employ in AWS. This also creates a significant switching cost for customers who employ it for their AI work.

Risk

Performing well on AWS doesn’t mean that other challenges facing the business have gone away. The problem is both consumer weakness in the U.S. and ongoing concerns about tariffs.

There’s not much Amazon can do directly about any of these issues. However, investors looking to assess the importance of risk should pay attention to several things.

First, the company’s scale means it is better placed to weather a downturn than its competitors. Such tender consumer spending may actually strengthen the company’s long-term position.

Second, Amazon has recently tried to reduce its workforce. This should go some way to offsetting the rising costs associated with customs duties.

Perspectives

Amazon is one of the largest investments in my Stocks and Shares ISA. And I think the latest results are very positive for the company.

The accelerating growth in the cloud computing industry is an encouraging sign. I am really interested in adopting Trainium2 chips as a source of long-term growth.

While AWS is – rightly – in the spotlight right now, I’m also impressed by the 24% revenue growth generated by the advertising division. This is something I think is also worth considering.

I was hoping the stock price would drop after earnings, giving me a chance to buy. Even though that didn’t happen, I still think it’s worth considering.